Market

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What is 'Market'

A market is a medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange. This type of market may either be a physical marketplace where people come together to exchange goods and services in person, as in a bazaar or shopping center, or a virtual market wherein buyers and sellers do not interact, as in an online market. Market can also refer to the general market where securities are traded. This form of the term may also refer to specific securities markets and may take place in person or online. The term "market" can also refer to people with the desire and ability to buy a specific product or service.

BREAKING DOWN 'Market'

Markets may come in the form of physical locations where transactions are made, which may exist as anything from thrift or boutique stores selling individual items to wholesale markets selling goods to other distributors. Yet, markets do not necessarily need to be a physical meeting place. Internet-based stores and auction sites, for example, are all markets in which transactions can take place entirely online and where the two parties do not ever need to physically meet. Technically speaking, a market is any medium through which two or more parties can engage in an economic transaction, even those that do not necessarily need to involve money. A market transaction may involve goods, services, information, currency or any combination of these things passing from one party to another in exchange for one of these or another combination.

How Markets Work

Markets establish the going rates for goods and other services, which sellers determine by creating supply and which buyers determine by creating demand. A market is a focal center for the distribution of goods and resources within a society, though they are not always deliberately created. Markets may emerge organically or as a means of enabling ownership rights over goods, services and information. When on a national or other more specific regional level, markets may often be categorized as “developed” markets or “developing” markets, depending on many factors including income levels and the nation or region’s openness to foreign trade.

Markets vary widely for a number of reasons, including the kinds of products sold, location, duration, size and constituency of the customer base, size, legality and many other factors. For example, the term black market refers to an illegal market. Yet, like markets in general, a black market can be a physical market where illegal goods are traded in person or a virtual market where illegal goods are traded with relative anonymity. A variation on this is a grey market, which is an unauthorized or unofficial locus of trade through channels that are otherwise legal.

Because a market may often be bound to a geographic region, nation or state, even when the market in question is not physical, it is subject to rules and regulations set by a regional or other governing body that determines the market’s nature. This may be the case when the regulation is as wide-reaching and as widely recognized as an international trade agreement (such as the North American Free Trade Agreement or the European Union) or as local and temporary as a pop-up street market where vendors self-regulate through market forces.

The theoretical optimally functioning market is one experiencing perfect competition, a condition in which no individual party or other entity within the market is powerful enough to determine the price of a particular good or service. In addition, though only two parties are needed to make a trade, at minimum a third party is needed in order to introduce an element of competition and bring balance to the market. As such, a market in a state of perfect competition, among other things, is necessarily characterized by a high number of active buyers and sellers.

Securities Markets

The most common types of securities markets are stock markets, bond markets, currency markets (called foreign exchange markets or forex), money markets and futures markets. Many of these markets manifest themselves in the form of exchanges. In the case of the stock market, there are a variety of exchanges around the world, the most popular of which are the New York Stock Exchange, NASDAQ, the United Kingdom's London Stock Exchange, Japan’s Tokyo Stock Exchange, China’s Shanghai Stock Exchange, the Hong Kong Stock Exchange, Euronext, China’s Shenzen Stock Exchange, Canada’s TMX Group and Germany’s Deutsche Börse.

Generally speaking, the existence and prevalence of these various forms of securities markets are characteristics of a free market economy.

A Market as a Group of People

This use of “market” can refer to a constituency with interest in a product or service that is of any size and exists on any social level. For example, it can be used in reference to something as local as “the Brooklyn housing market” or as broad as “the global diamond market.”